This is a CU Colorado Springs student blog for the following courses: Intermediate Microeconomics and Austrian Economics.

April 29, 2010

Rent seeking airlines?

Going into effect today is the new airline regulation going into effect for airlines. The purpose of the airline is to prevent the long periods of waiting that have caused passengers numerous inconveniences over the years due to delays. In order to prevent this outrage to its consumers, the federal government has passed into law a 3 hour limitation to enclosure on the plane to be enforced by a 27,500 dollar fine per passenger for violation. Also, the airlines are now required to provide their passengers with certain accomodations such as food, water, and bathrooms after 2 hours.

I have a couple of issues with this regulations. The first that I take issue with is the fact that if these passengers are truly being harmed, it is already illegal without these regulations. This would mean that there is already a recourse through the courts for damages and recourse for this harm, so why does there need to be an additional law for something that is already illegal. Setting that aside, why are the fines being paid to the government? They are not being harmed. In fact, I am fairly certain that if all those people were paid 27,500 for their inconvenience, there would be many who would purposely purchase flights that have frequent delays. I know I would...one fine would pay off most of my student loans. I wonder what the government will use the fines for...maybe healthcare.

I believe this may actually be a case of rent seeking. Certain larger airlines will be better able to handle the cancellations that will be caused by these new regulations. They run more flights, larger aircraft, and charge higher prices. Smaller airlines that keep their prices low by keeping their costs low will be less able to compete. They can't afford the fines and they already keep their flights at the most economical level that they are able. Their only option will be to raise prices, which will likely price them out of niche that airlines such as JetBlue and Southwest airlines have carved out in the domestic airline market. Seems like a pretty unjust balance.